In 2031, one million more retirees will be required to pay income tax; learn how to reduce your taxes

Forecasts indicate that an ongoing freeze to tax bands will force hundreds of thousands of pensioners to pay income tax

According to a new estimate, a million more pensioners will have to pay income tax in 2031 as a result of multiple tax threshold freezes.

The Office for Budget Responsibility (OBR) estimates that the number of pensioners paying income tax will increase by 600,000 to 9.3 million in 2026 - 2027 from an anticipated 8.7 million in 2025 - 2026.

According to the fiscal watchdogs' most recent projections for the UK economy, which were released on March 3 along with the Spring Statement, one million additional retirees will be brought into the tax system in 203031.

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Start your trial. Tax thresholds are frozen until 2031, but the increase occurs as incomes rise, partly because of the state pension rising under the triple lock.

Many of the one million individuals who will be taxed in 2031 will pay "very small additional amounts" to HMRC, according to the OBR.

Chancellor Rachel Reeves has stated that pensioners whose only source of income is the state pension will be able to avoid paying income tax starting in 2027.

Later this year, HM Treasury is anticipated to provide additional information about the administration of this exemption.

Why do more retirees pay income tax?

Since the triple lock mechanism went into place in April 2011, pensioners have seen a steady increase in their state pension.

According to the mechanism, the state pension is increased by the maximum amount of 2.5 percent, inflation (CPI), or growth in average earnings.

The state pension will increase by 4.8% in April 2026. This means that starting in April 2026, the entire new state pension will rise from 230.25 per week to 241.30 per week.

On the other hand, income tax thresholds and the tax-free personal allowance (12,570) have been set at their current levels since April 2021 and will stay that way until 2031.

More of people's money is subject to taxes as their incomes rise, especially for pensioners who receive larger state pensions. People gradually pay more taxes as their incomes rise with inflation, a phenomenon known as fiscal drag and sometimes referred to as a "stealth" tax.

According to the most recent HMRC data, 8.3 million individuals of state pension age paid income tax in 2024 - 2025, up from 5.9 million in 2011 - 2012.

How retirees can lower their taxes.

There are strategies to lessen the impact if you are among the millions of retirees who must pay income tax on your income.

Postpone your state pension.

Your state pension can be postponed as one choice. When it comes time to actually claim your state pension, you will receive a 1% increase for each nine weeks you defer. This is applicable if you are or will be eligible for a state pension on or after April 6, 2026.

Any top-up must be deferred for at least nine weeks.

If you are still employed and claiming your state pension would put you over certain tax thresholds, it may be advantageous to postpone taking it.

After you stop working and your taxable income drops, you could then claim it.

Just keep in mind that you may receive less in government benefits if you postpone your state pension.

Be prudent with your tax-free money.

At age 55 (57 from April 2028), you are eligible to receive a tax-free lump sum of 25% of your private or workplace pension, up to a maximum of 268,275.

However, you don't have to remove it all at once; you can do so gradually. For instance, you could use it to reduce your overall tax liability by supplementing your taxable income.

Investment platform Hargreaves Lansdown's head of retirement analysis, Helen Morrissey, stated that "you can use the tax-free cash from your pension to supplement your taxable income."

Maximize the use of ISAs.

You could use tax-free withdrawals from an ISA to increase your taxable income.

It is worthwhile to include money in an ISA if you are still making money and would like to save some.

The personal savings allowance (PSA), which levies taxes on interest earned over specific thresholds, applies to funds kept in a taxable savings account. For basic-rate taxpayers, savings interest of up to £1,000 is tax-free; for higher-rate taxpayers, the allowance is £500. A PSA is not given to additional rate taxpayers.

Divide your investment income or savings with a partner.

To reduce your total tax liability, you might be able to divide the income from investments or savings between you and your spouse. This is especially beneficial if one's income is significantly higher than the others'.

"Couples can often reduce the overall bill by shifting savings or investment income towards the lower earning partner," stated Adam Cole, retirement specialist at Quilter. A "

One allowance you can use is the marriage allowance, which allows you to give a higher-earning partner 1,260 of your personal allowance in order to lower their tax liability.

In order to be eligible, the lower earner's spouse or civil partner must be a basic rate taxpayer and their income must typically be less than the personal allowance.